Ethereum is not only the second largest cryptocurrency by market capitalization but also the epicenter of much of the innovation in the crypto ecosystem. On-chain metrics like Velocity are key indicators for measuring this activity. Although less known, Velocity is essential for understanding how ETH is being used within the network.
Total Transaction Volume (USD)
velocity= -----------------------------------
Total ETH Suppy
An increase in velocity indicates a rise in the usage of tokens, whether for payments, swaps, DeFi applications, or overall economic activity within the network. This suggests that tokens are moving frequently, actively participating in decentralized transactions and protocols.
High Velocity and Volatility:
High velocities are also typical of highly speculative markets, where volatility is elevated. This reflects an environment where investors seek to take advantage of rapid price movements, significantly increasing activity on the network.
Velocity and Active Addresses:
Increases in velocity, combined with a rise in active addresses, can also be an early signal of significant price surges over a short period, indicating a rise in demand and network usage.
Recent Evolution:
Since April 20th, Ethereum's velocity has seen a considerable increase, rising from 7.7176 to 8.0506 as of May 15th, representing a 4.31% gain. However, more than the percentage itself, the critical factor is the speed at which this increase has occurred, closely linked to the growth of DeFi—a sector strongly connected to retail interest in Ethereum. In its early stages, these velocity percentages may seem modest, but they can quickly escalate to much higher levels in a short period. The key is to detect these small changes early to anticipate significant movements.
See charts 1 and 2.
Signed by Carmelo Alemán, Verified On-Chain Analyst at Cryptoquant
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Written by Carmelo_Alemán
